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Real Estate Investing Buying & Selling W/Seller Financing & Selling your Note

Discussion in 'Making Money' started by buku1, Feb 6, 2013.

  1. buku1

    buku1 Newbie

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    Hello everyone, seeing all the interest in another post about RE Investing about buying/selling properties with seller financing, I created this guide to for you all. You will learn exactly what seller financing is, its benefits, and how to sell your note that was created. Keep checking back for updated information, and Q&A.

    Who can use it?
    Anyone that is looking to sell real estate in spite of market conditions good or bad

    What is Seller Financing (owner financing)?
    Seller financing is when the seller of a property or business finances the buyer rather than the buyer obtaining one from the bank. Usually, the buyer will always make some kind of down payment to the seller, and then make monthly payments over a specified time, with an agreed-upon interest rate, till the loan is fully repaid. To the seller this can be an investment in which the return is guaranteed only from the buyer's credit-worthiness or ability and motivation to pay the mortgage. For the buyer it is often beneficial because he/she might not be able to obtain a loan from the bank. The loan is secured by the property being sold. In the event that the buyer defaults, the property is repossessed or foreclosed just as it would be by a bank.

    Where can it be done:
    Seller financing can be done anywhere, however is can be referred to as owner financing, seller carry-bank, etc...

    When can it be used?
    Seller financing can be used whenever you can't sell your property due to market conditions and it is sitting on the marketplace for 90+ days or you're a buyer who can't qualify for a conventional loan from the bank because of ever-increasing restrictions on underwriting.

    Why Seller Financing?

    • Sell your property FASTER!
    • Both the buyer and the seller can make substantial savings in closing costs.
    • They can negotiate interest rate, repayment schedule, and other conditions of the loan.

    What are the Benefits?

    For The Buyer

    • Self-employed can qualify
    • People new to the area or with new careers qualify
    • Prior minor credit problems do not disqualify
    • No loan origination fees or points
    • No restrictive debt-to-income rations

    For The Seller

    • Advertise with "owner financing available"
    • Increase marketability with a wider group of purchasers
    • Obtain the maximum sales price
    • Sell property faster and close quickly

    If you haven't noticed yet Seller financing is a priceless tool in helping you achieve your real estate goals.

    Most sellers have two big concerns when motivated to "Be the Bank". The first is whether or not a buyer will pay and the second is how long it will take to get paid.

    This is where I can help. I purchase and work together with private investors that purchase seller financed notes after closing. This allows the seller to collect a few payments then convert all or part of their future payments to cash today.

    Let's take a look at this Transaction Example:

    Let's examine an average single family home with a sale price of $150,000. The owner must sell and advertises the property with "owner financing available" to attract more buyers. An interested buyer with a down payment of 15% |along with a credit score of 675 approaches the seller with an offer. They have self-employment income however the banks want to see at least another year in business prior to making a mortgage loan.

    The seller and buyer mutually agree to an installment sale as follows:

    SALES PRICE: $150,000.00
    DOWN PAYMENT: $22,500.00
    SELLER FINANCED NOTE: $127,500.00
    INTEREST RATE: 8.5%
    MONTHLY PAYMENT: $980.36
    TERM: 30 YEAR AMORTIZATION, BALLOON DUE 10 YEARS

    The transaction closes and the seller collects the first monthly payment. The seller would prefer a lump sum of cash so decides to sell payments to a note buyer after closing.

    As a note holder you have several options to sell your note, such as the following

    OPTION #1
    I purchase just the monthly payments and lets the balloon revert to the seller

    DOWN PAYMENT RECEIVED: $22,500.00
    CASH PROCEEDS FOR SALE OF : $65,390.00
    119 PAYMENTS
    BALLOON PAYMENT DUE IN 10: $112,969.00
    YEAR
    TOTAL TO SELLER OVER TIME: $200,859.00

    OPTION #2
    The seller doesn't want to bother about whether or not the buyer makes payments or not. They want to be done with the deal so choose to sell all the remaining payments including the balloon.

    DOWN PAYMENT RECEIVED: $22,500.00
    CASH PROCEEDS FOR SALE OF
    119 PAYMENTS & BALLOON: $96,279.00
    TOTAL TO SELLER: $119,229.00

    ATTN BHW MEMBERS: Transactions are for illustrative purposes only. Each transaction is unique and will depend on a note buyer's evaluation of property value, equity, payer credit, terms, and payment history.

    These examples today just touch the surface of the many purchase options available. I can customize purchase offers to fulfill the individual needs of the seller. That's why I'm here to help!

    ATTENTION REAL ESTATE AGENTS:
    I encourage you to look over your listings and see if there is a property that isn't moving or has a financing snag, and apply seller financing to remedy the problem. While looking if you see any properties already sold via owner financing, and you think the note holder can benefit from selling their ‘Note" please send them my way, I Pay Referral Fees. Feel free to contact for more information/questions or to refer a note.

    ATTENTION EVERYONE:
    Please let me be clear that seller-financing will NOT work on every transaction. Should you have a bank-approved borrower with a qualified property and the seller can receive 100% of the asking price at closing then there's not a necessity for owner financing. It cannot provide a remedy for underwater mortgages or sellers in foreclosure. However when a deal makes sense yet financing just isn't available, seller financing CAN close deals

    I am confident that using seller financing will provide the opportunity to increase your buying & selling power. It's a pleasure being a member on this site and i have learned a great amount here, please take this new found knowledge and apply it!
    NOW, let's make some money

    Take Care!

    PS.
    Message me with your email/phone contact info to discuss your options and answer any questions you may have.

    PPS.
    Want to know more? Go ahead and check out my company Noble Note Capital for more information

    PPPS.
    Did you learn something new? Was this post helpful? GREAT why don't you "thank me" and/or add reputation, it's always appreciated and I promise to always Over Deliver in helping you all
     
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    Last edited: Feb 6, 2013
  2. argh11

    argh11 Regular Member

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    buku1,
    Thank you for a very informative post! Wondering about a few points, hoping you can clear them up. :)

    I realize this is just an example and every transaction is unique. However holding that this is a normal loan and everything works out just right...


    1. In Option#1 you are essentially buying 10 yrs of loan payments from the seller so he can have quick cash and both sides are happy. You buy about $117k of payments for about $65k making it about a purchase of 55% with you collecting long term the 100%. Does this sound about right?

    2. In Option#2 you are buying 30 yrs of loan payments from the seller so he can have quick cash and not deal with any payments or the property anymore - again both sides are happy. You buy about $350k of payments for about $96k making it about a purchase of 27% with you collecting long term the 100%. Does this sound about right?


    Both options make sense in the fact that the seller does not have to wait around for his $ and you get to play bank and make more money but have to waith 10-30 yrs for the full return. Win-Win on both sides.

    3. So do you have kind of a sliding scale of % of return depending on how many years of loan you purchase?

    4. How does the balloon payment work for the buyer? I just do not see most buyers being able to make that balloon payment after 10 years to you or the seller.
     
  3. zebrahat

    zebrahat Elite Member

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    A house buying technique is ineffective unless it is felt to apply to the seller's needs or expectations. Most sellers are expecting to sell their property at about retail price, with net cash coming to them from a new bank mortgage (from a buyer who is properly qualified and prepared to prove it upfront by producing a pre-qualification letter). They either have no knowledge of non-conventional transactions, or would be actively opposed to them.

    To change this perspective your approach has to be geared towards identifying those sellers who would be receptive to this kind of deal. That's why the typical emphasis is put on "motivated" sellers, who due to a dire situation may be open to an investor-friendly offer. The investor may put a "houses wanted" ad in the paper flat out saying they are offering creative or non-conventional solutions to a seller's problem. The voicemail number listed repeats and elaborates on this point in a recorded message, so that the buyer is now twice screened in to the message that this will be a non-standard purchase.

    Once a buyer then has a 'live' conversation with the seller, it's reasonable at that point to suppose the seller is open to this kind of deal, and to taking about their desperate situation. A great test question to ask the seller is "well what do you intend to do if it doesn't sell?" then craft their offer as the equivalent to whatever their plan B is. If they say, "I'll probably rent it out," offer to take it as a lease-option, or take-over payments deal. If they say, "then I will have to refinance," a modified form of seller financing where you sell the created note at closing may give them the cash amount they were expecting. That kind of thing. If you try to sell a 'seller-financing' deal cold, without setting the stage as above, it will be a much more difficult to get a yes.
     
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    Last edited: Feb 10, 2013